Does The Government Really Hate Us (Millennials) That Much?

According to a Bloomberg report, the federal government has (in recent years) paid debt collectors close to $38 per every $1 of student debt to help distressed borrowers climb out of default and come up with regular monthly payments. New analytics suggest that much of that money may have been wasted.

According to data from the Consumer Financial Protection Bureau, nearly half of defaulted student-loan borrowers who worked with debt collectors to return to good standing on their loans defaulted again within three years. For hassling former students (by calling or texting non-stop to making threats), debt collectors receive up to $1,710 each time they convince a borrower to make one good payment on soured debt from the U.S. Department of Education. They keep those funds even if borrowers subsequently default again. According to Bloomberg, the Department of Education has paid over $4 billion for payments to its debt collectors over the past three years.

It’s clear this plan needs overhaul. When these collectors have no skin in the game they can literally tell borrows over the phone, just make one payment then forget about it and still get paid. Who loses? The government and us, Millennials who still have student loans to pay off.

Debt Collectors 1, Students 0 and Federal Government — 1

The sad thing is that the Government is passing up on a tremendous opportunity here to create a win-win for its citizens. We should be asking why is the Government paying third party collectors when they can simply incentivize its own people to repay loans. Try this out: Instead of paying collectors $2k per recovered payment, how about they use that money to put together a program that subsidizes the repayment of these debts. It’s called tax credits and it will be far more effective for our country.

Think about this. As a reward for paying 100% of your federal student loan payments, the Government credits you up to $2,000 each year through a tax credit (below the line). Most people I know wouldn’t default unless their circumstances were really, really bad (for which they wouldn’t listen to a collection agency either).

Does the Government really think subsidizing these collections agencies will provide jobs to hard working citizens at reasonable wages?

If so than wow, they’re wrong. If not, then why not try helping the next generation for once.